How to develop Operational Strategy

Operational Strategy
It is concerned with the development of a long- term plan for determining how to best utilize the major resources of the firm so that there is a high degree of compatibility between these resources and the firms long term corporate strategy

Typical Operations Strategy

How big do we make the facilities? Where do we locate them? When do we build them? What type of processes do we install to make the product?

Priorities of Operations Strategy

Cost Quality Delivery Flexibility

Cost
A firm must be a low cost producer. Does not always guarantee profitability and success. Customers cannot distinguish the products of one firm from those of another Segment of market is very large and many companies are lured by the potential for significant profits. There can be only one low cost producer who usually establishes the selling price in the market. Eg:Nucor in the US.

Quality
Product Quality The level of quality in a products design will vary as to the market segment it is aimed for. The goal is to focus on the requirements of the customer. Process Quality Relates directly to the reliability of the product. The goal is to produce error free products through the concept of continuous improvement.

Speed of Delivery
Speed of delivery is an important determinant in its purchasing decisions for another niche. The ability of a firm to be able to provide consistent and fast delivery allows it to charge a premium price for its products. Eg: one-hour eye glass manufacturing, same day dry cleaning etc.

Delivery Reliability
This priority relates to the ability of the firm to supply the product or service on or before a promised due date.

Flexibility
The ability of a company to offer a wide variety of products to its customers. An important element is the time required for a company to develop a new product and convert its processes to offer the new product. Eg: Celestica, Inc, a Canadian computer component manufacturer.

Other Product Specific Criteria

Technical Liaison and Support. Meeting a launch date Supplier After Sale Support

Elements of Operations Strategy

Designing the production system. Product/Service design and development. Technology selection and process development. Allocation of resources to strategic alternatives. Facility Planning.

Designing the production System

Product design
1. Customized product design 2. Standard product design

Production System
1. Product Focused System 2. Process Focused System

Finished Goods Inventory Policy

1. Produce to stock policy 2. Produce to order policy

Production/Service Design & Development

Every product has a Life Cycle. Introduction Stage is the First stage after Designed & Development.
Introduction- Sales depends on promotion and other marketing efforts. Growth- Sales volume increases exponentially. Organizations takes decision regarding production expansion capacity. Maturity- Sales growth become stagnant. Organizations focuses on improving efficiency of the processes, minimizing cost, etc. Decline- Sales shows downward trend, because of Obsolescence of technology used in the product.

Steps in the Development of new products

1. 2. 3. 4. 5. 6. 7. 8. Idea Generation Feasibility Studies Prototype Design Prototype Testing Initial Design of Production Model Economic Evaluation Market Testing Final Design of Production Testing

Technology selection and process development

After finalizing design next step is how to produce. Process involves analysis and planning of the production processes and facilities. Process of Production is planned in detail. Technology to be used in the production process is selected from a range of Options

Allocation of resources to strategic alternatives

Problem of scares resources like capital, machines and materials and so on. Resource inputs are vital to production activities, their shortages can influence production performance significantly. Optimal use of resources both in terms of minimizing wastage, and in terms of their allocation to the best strategic use.

Facility Planning
Location of the production facilities is one of the key decisions. Since it is critical to the competitiveness of the organization. Setting up production facilities with adequate capacity involves massive initial investment.

A FRAME WORK FOR OPERATIONS STRATEGY IN MANUFACTURING

Strategic vision
CUSTOMER NEEDS

NEW PRODUCT

CURRENT PRODUCT

PERFORMANCE PRIORITIES

Quality, Dependability, flexibility, Price, stability

Enterprise capabilities Operation capabilities Distribution

R&D

Technology
CIM

Systems JIT

People
TQM

Developing a manufacturing strategy

The steps for developing priorities are: 1) Segment the market according to the product group 2) Identify the product requirement, demand patterns, and profit margin of each group 3) Determine the order winner and order qualifiers for each group 4) Convert order winners into specific performance requirements

Manufacturing requirements differences

1) 2) 3) 4) 5) 6) 7) Products Customers Product range Design changes Quality Demand variation Profit margin

External performance priorities

Order winners Price, product, reliability, product specification --Order qualifiers Delivery lead time Product specification Quality conformance Price

Productivity Measurement and Learning Curves Productivity Measurement: Productivity is a common measure of how well a country, industry, or business unit is using its resources. Since operations management focuses on making the best use of the resources available to a firm, productivity measurement is fundamental to understanding operations-related performance. In its broadest sense, productivity is defined as Productivity = Outputs Inputs Productivity may be expressed as partial measures, multifactor, or total measures. Partial measure = Output or Output or Output or Output Labor Capital Materials Energy Multifactor = Output or Output Labor+Capital+Energy Labor+Capital+Materials Total measure = Output or Goods and services produced

Learning Curves: Learning Curves Analysis is based on the premises that an organization gains experience in manufacturing a product, the resource required per unit of output diminishes over the of the product, Reasons: 1. Workers are unfamiliar with the task, time required to produce first few units 2. Technology is new and has not been tried out 3. As workers learn their tasks, their performance improves Performance time drops off faster at first and it continues to fall at some slower rate until a performance leveling-off is reached. This learning pattern applies to individual, groups and organizations. Further it is often regular and predictable